Shareholders push for Tabcorp demerger

Tabcorp
Tabcorp shareholders are said to be pushing for the company’s wagering arm to be separated from its lottery arm sooner rather than later.

The Sydney Morning Herald reports that as shareholders agitate, British gambling giant Entain, which owns the Ladbrokes brand, and US private equity fund Apollo have both made circa $3 billion offers for Tabcorp’s bookmaking and media division, while market watchers expect Rupert Murdoch to be interested given his Fox Corporation’s recent moves into the nascent US sports betting market.

The $10 billion group has not given any update on the sale process to investors since its half-year earnings results a month ago, when it said it was carefully assessing the highly conditional offers that would need to jump through significant regulatory hoops.

That has renewed calls from some investors for Tabcorp to unwind its 2017 merger with the Tatts Group, in the belief that its booming lotteries operation would be valued higher if cut free from its bookmaking arm, which has been losing ground to online competitors such as Sportsbet and Ladbrokes.

“The interest from the various parties has let the genie out of the bottle,” Airlie Funds Management fund manager Matt Williams said last Monday.

“So that even if this interest does not end in a sale, shareholders will want the two businesses separated.”

Mr Williams, whose fund has a small Tabcorp shareholding, said starting work on a demerger would not prevent the group from exploring offers for the business, while a stand-alone listed wagering business could still attract bids in the future.

“This would most likely be a complex process, so the sooner they start at least the early preparatory work, the better,” Mr Williams said.

“I’m slightly surprised that there hasn’t been more information around these bids but I’m sure that will occur in due course.”

Activist investors Sandon Capital has long called for the Tabcorp-Tatts merger to be unwound, and its managing director Gabriel Radzyminski said on Monday that a wagering demerger was still the best way to unlock value for investors.

“Given all the regulatory hurdles, anything that involves a sale of the asset is likely to take a long time to get done,” Mr Radzyminski said.

“A de-merger could probably be achieved fast, or at least if a process is underway it begins to get a re-rating of the company.”

Mr Radzyminski said starting a demerger process would create competitive tensions with bidders, pushing them to make their best offers while flushing out other potential suitors.

Major shareholders including Perpetual have previously thrown their weight behind a demerger.

Tabcorp’s outgoing chief executive David Attenborough said last month that the timing of the takeover offers was not surprising given it would soon start showing the benefits of the integration of TAB and Tatts’ UBET operations.

The company is yet to announce a replacement for Mr Attenborough, who along with former chair Paula Dwyer, announced his resignation last year amid investor angst over the wagering business’ performance.

Tabcorp’s shares have recently recovered to their pre-COVID valuation, closing half a per cent higher at $4.62 on Monday.

The pandemic led to the share price falling to as low as $2.33 in March 2020.

Entain entertains Tabcorp purchase

Entain Logo

The British owner of Ladbrokes, Entain, is reported to be in the early stages of a buyout of Australian bookmaker and gambling heavyweight Tabcorp.

Bloomberg reported in February that Entain made a non-bind offer for the wagering and media division of Australia’s largest gambling company.

Discussions about a combination with Entain’s existing Australian business are at an early stage, the London-listed owner of the Ladbrokes betting chain said on Tuesday.

The offer could face competition as Tabcorp said the business has received “a number of unsolicited approaches and proposals” in recent weeks.

Any deal would give Entain extra scale in the region.

Sports betting has become a busy area for mergers globally as the industry transitions online and US states legalise wagers.

Last month, Entain rejected an $11 billion takeover approach from US casino operator MGM Resorts International.

Wagering and media is Tabcorp’s biggest division after the lotteries and keno business.

In the year to June 2020, wagering and media-generated 40 per cent of its A$5.22 billion in revenue, company filings show.

“Given the consolidated nature of the Australian market, there are limited such opportunities left to look at,” Goodboyd analyst David Brohan said in a note to clients.

“Assuming any deal is completed at the right price we can see positives from a transaction.”

William Brown

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